Over the past few months, the big debate has been whether the hypergrowth in 2021 will end in a soft landing – a gradual slowdown – or a hard landing that turns into a nasty recession.
Why it matters: Policymakers are looking for more moderate job creation as the economy cools, easing inflationary pressures. Instead, the labor market remains stable.
- That eases fears of a recession for now, but also raises the risk that the Fed will maintain an aggressive approach to raising interest rates.
News Movement: Employers added 372,000 jobs last month, roughly 100,000 more than Wall Street economists expected. The unemployment rate remained unchanged at 3.6%.
Between the lines: This is an unusual time when even politicians are looking to slow jobs.
- President Biden, for example, said in a post on May 30 that if job growth fell to around 150,000 per month, it would be “a sign that we are successfully moving into the next phase of the recovery.”
- However, this does not happen. Over the past three months, job gains have averaged 375,000 per month.
- Since employers are still creating jobs at a faster than demographic rate, this means that an overheated economy is not cooling enough to curb inflation.
It’s a good reminder that despite all the focus on a few hiring freezes and layoffs at some buoyant companies, most U.S. businesses are still hiring aggressively to meet high demand.
- This is also reflected in indicators such as weekly jobless claims, which have risen recently but remain near historic lows.
For the Federal Reserve, strong job growth makes another rate hike of 0.75 percentage points later this month almost certain (officials have indicated a half-point increase is also an option).
- Bond markets were sharply lower at the start of the day after the yield on two-year Treasury notes jumped to 3.12%.
What they say: “Today’s jobs number should calm fears of an impending recession, but does nothing to ease fears of significant further Fed tightening,” said Seema Shah, chief global strategist at Principal Global Investors.
Yes, but: The report also contained some news that helped ease fears of an upward inflation spiral. It showed average hourly earnings rose 0.3 percent last month, up 5.1 percent over the past year.
- Those numbers were flat with last month and reflected a slowdown from earlier in the year, suggesting no upward spiral in wages.
There are also conflicting signals in the report. According to the household survey used to derive the unemployment rate, there are 315,000 fewer working Americans. The proportion of working adults in the prime – people aged 25 to 54 – fell to 79.8%.
How it works: The establishment survey — a survey of employers that generates data on wages and earnings — is generally considered more reliable for monthly job gains, though it is subject to major revisions as more complete data becomes available.
However, the household survey has a larger margin of error than its counterpart, so each month is more likely to give a misleading signal.
- The Bureau of Labor Statistics says that in the survey of employers, the 120,000 job moves were statistically significant, while in the survey of households, the number was 500,000.
The big picture: Another troubling sign showed the labor force shrinking by 353,000 workers — certainly not something Fed officials want to see. They hope the labor market is attracting more workers to ease the pressure of shortages, which could help cool inflation.
The bottom line: The economy probably isn’t in recession. But the longer job growth remains flat, the more painful the eventual contraction.
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